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Dow Jones Newswires: UPDATE: Russian Min To Begin Sakhalin Energy Audit Tuesday

 (This updates an item published at 1005 GMT, with comment from Sakhalin Energy and context regarding its proposed deal with Gazprom)

MOSCOW -(Dow Jones)- The Russian Natural Resources Ministry said Thursday that it would launch a month-long audit of the Sakhalin-2 project at the start of July, claiming that delays and cost overruns to the project were threatening national interest.

A statement released by Natural Resources Minister Yuri Trutnev said Sakhalin Energy Ltd., a consortium led by Royal Dutch Shell Group (RDSA), is taking longer to drill wells and start production than foreseen in the Production Sharing Agreement under which the project is being developed.

“This is harming the interests of the Russian Federation, inasmuch as it defers to a later date the sharing of profit oil between the state and investors, and causes the cost of the project to rise.”

Trutnev said that, even under the most optimistic forecasts, the state couldn’t hope to receive profit oil until 2014 at the earliest, due in part to Sakhalin Energy’s estimated costs doubling between 2003 and 2005.

The Ministry said its experts estimate that Sakhalin Energy’s delays in drilling wells would lead to the loss of 107 days’ production at the Astokh field in 2007 alone.

It also said the start of production at the Piltun field would be delayed by a year due to Sakhalin Energy’s failure to have the required platform in place on time.
The Ministry also noted that Sakhalin Energy now proposes to load its first tanker of liquefied natural gas no earlier than the third quarter of 2008, as opposed to November 2007 in its original plans.

It also said the consortium plans to produce 2.8 million metric tons less oil between 2006 and 2008 than it originally planned – an average of 47,000 barrels a day instead of 64,000 B/D.
A Sakhalin Energy spokesman said the ministry’s statement only reiterated what it itself had said about the project last year.

“The ministry’s statement doesn’t contain any new information that the company hadn’t already provided,” the spokesman said.

He declined to speculate on why the government had chosen this moment to announce the audit.

The ministry’s announcement comes only a day after it accused TNK-BP (TNBP.RS), the joint venture that incorporates BP PLC’s (BP) assets in Russia, of leaving too many wells idle.
Sakhalin Energy’s consortium members are negotiating the sale of a stake in the project to OAO Gazprom (GSPBEX.RS), which said Monday it hopes to complete the deal in the near future.

As reported, Gazprom aims to swap a stake of 25% plus one share in Sakhalin Energy a 50% stake in the Neokomskoye deposit of its Zapolyarnoye field in northern Russia.

Gazprom argues the upward revision of Sakhalin Energy’s cost estimates has diminished the value of the stake it wants to take.

Ministry Web site:
-By Geoffrey T. Smith, Dow Jones Newswires; (+7 495) 974 8055; [email protected] and its sister non-profit websites,,,,,, and are owned by John Donovan. There is also a Wikipedia feature.

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